Recent Investing Trends(Past 5 years)

(Posted on 4/18/13 at 9:55 pm)

I have to write a term paper on this subject and wanted to see if there are any recent investing trends that are particularly noteworthy and necessary of inclusion. And don't you dare say bitcoins cause Im not going to degrade my writing with that crap!

J/k Wiki, Im definitely gonna include it. It is interesting regardless of the opinions some people might have. It also fits the topic pretty well.

I believe it would interesting to discuss the potential bubbles that are facing most seniors. Many of them have benefited from the flock to what are perceived as low-risk assets (bonds) and inflation hedges (gold, silver). Others have gone above their risk tolerance in search of yield, and perhaps unknowingly put themselves in very precarious situations. It is quite possible that these bubbles will be detrimental to seniors in the near future, and we may already be seeing that in gold.

The two things that most people are talking about more than anything else are (A) high frequency trading, a.k.a. algo trading, and (B) risk management measures.

For the people on the cutting edge still trying to pull every conceivable trick to capture a little more alpha, it's (A) that's the big deal. There have actually been spikes in real estate prices based on getting Internet cables closer to the trading floor (in Chicago in other places), where an extra 10 meters is actually worth lots of money.

For institutional investors and large financial firms, the biggest change in their universe over the last 5 years has been all the regulatory compliance shite they have to deal with, and a huge part of that relies on Value-at-Risk and similar risk measures that are mandated by regulatory bodies. See also insurance and reinsurance firms.

Back 5-10 years ago, it was the slicing and dicing of asset backed securities that was a big deal, and 10-20 years ago, it was alternative investments by big endowments into venture capital, hedge funds, private equity, etc., that was a big deal, but both of those things have been relatively cold the last 5 years.

There are always new computational methods being devised for equity derivatives traders and professional portfolio managers, but nothing really revolutionary has happened in the past 5 years there. Just some modest incremental changes, although for the derivatives people, everybody is more interested in extreme value theory and outliers, but really, that just gets back to VaR and TVaR.

The capital inflows into emerging markets caused in part by significant interest rate spreads and met with soaring market returns in those countries are interesting, particularly once you start comparing the differing characteristics and demographics of some of those markets. There's also one major exception.

quote:I was heavy with equities, so 6 months ago I went to 60/40 stock-bond ratio.

Now everything I read says get out of bonds.

For instance, I have a Vanguard Wellesley Fund - VWINX. Report this week that if interest rates go up 25 points, I lose .6 on the fund. That would be some hurt.

This is exactly it. Matthew25's post history makes me believe his is an educated investor, yet he still is going to get stuck between a rock and a hard place if interest rates rise with any velocity. Obviously if it is a slow and steady rise, things will be relatively normal though.

Seniors need income, and most have followed this path:

Seniors in CDs have either taken it on the chin with the low rates or have "graduated" to bonds or fixed annuities.

Seniors already in bonds and fixed annuities have progressed to high-dividend stocks.

Seniors already in high-dividend stocks have moved on to REITs and limited partnerships.

Seniors already in REITs and LPs are probably bat- shite crazy.

Also, many seniors have been duped into gold and silver as an inflation-hedge or a store of value (I contend that precious metals do neither).

Most of these progressions are fine and dandy if you understand the added risk with each step. Unfortunately, many of them do not, but they have probably seen abnormally high capital gains on these investments nonetheless. These investments have met the income needs of seniors AND provided capital growth. Human nature takes over and they begin to pour in money hand over fist into these new gold mines - pun intended. If/when rates begin to rise, I believe senior investors are going to forget the purpose of those investments - income - and either get hammered on their principal, or we will see a mad rush to the exits in those asset classes. I just hope senior retail investors are not left holding the bag.

another trend is on annuities, a lot of the "big players" are getting creamed right now because they over extended during the good times of 06 and 07. they have too many locked in payements right now and are struggling to compete with the guys who didn't go crazy (nationwide for example)